By Fauzia Khan
Web3 technologies and products are increasingly being discussed not only in the technology world but also as potential investment avenues. The numbers speak for themselves with daily global trading volumes exceeding $275 billion across more than 400 platforms in November 2022. Global numbers on ownership of digital assets have demonstrated exponential growth, skyrocketing from approximately 5 million individuals in 2016 to an estimated 220 million by June 2021, and a staggering 320 million in 2022.
What is particularly noteworthy is that this surge in adoption of virtual assets has also been felt in a greater way in emerging markets and developing economies (EMDEs), with 18 of the top 20 countries for crypto falling within this category. As the adoption of digital assets is rapidly gaining traction, the calls for ensuring strong consumer protection have also been rising. Recognizing this critical need, Standard Setting Bodies (SSBs) and industry experts have been consistently highlighting it as a pivotal pillar for the virtual digital asset industry.
A sound consumer protection framework would bolster the security and well-being of consumers in an environment that’s ever-changing. Around the world, numerous countries are carefully examining how to regulate virtual digital assets (VDAs) and are taking their first strides in this direction—examples include South Korea, Hong Kong, South Africa, and the UK.
EMPOWERING CONSUMERS THROUGH INFORMATION AND EDUCATION
One of the basic principles to empower consumers is always to encourage dissemination of accurate, comprehensive and incisive information. Therefore, similar initiatives must be taken with respect to the intricacies, functionalities, and associated risks of VDAs. There is a need for collating an information repository that lists disclosures for both existing and potential holders of such VDAs. Additionally, frequent educational initiatives and awareness programmes can go a long way in enabling consumers to overcome the myths and make well-informed investment decisions.
EFFICIENT REDRESSAL MECHANISMS
As with any other product or market in the physical or digital world, the establishment of a robust framework for handling consumer complaints assumes paramount importance. Policy makers in close collaboration with individual organizations and industry associations ought to undertake the formulation of processes and procedures that prescribe requirements, templates, and measures for efficient complaint resolution in a time bound manner. Such a proactive approach ensures that consumer grievances are promptly and effectively addressed, reinforcing their faith in the governance of such platforms.
EMBRACING BEST PRACTICES AND DISCLOSURE NORMS
As this industry is still a nascent one, the organizations must not only adhere to existing rules and regulations but also strive to adopt best practices from across relevant sectors. In the interest of strengthening consumer protection, it is crucial to encourage Virtual Asset Service Providers (VASPs) to prominently disclose vital information on their websites and mobile apps. This should include, but not be limited to, important aspects like ownership structure, key management personnel and official contact points. Moreover, VASPs should provide important legal and regulatory details, highlighting their registration status, license numbers, and unwavering compliance with all relevant laws. This information repository should offer a comprehensive overview of the services offered by the VASP, giving users a clear understanding of what the entity provides. Practices like explanations of price valuations and rejection of assets which cross price threshold should also be adopted to maintain the integrity of the markets and aids in ensuring stability- habits essential to be inculcated from the get-go.
The disclosure may also include the privacy policy of the VASPs and user agreement along with breakdown of fees and charges associated with transactions and services. Remaining in tune with market dynamics, VASPs are also expected to furnish accurate, up-to-date market information, including trading volumes, price metrics, and historical data. This commitment to transparency will ensure that users can have more faith in the organization as all details are easily accessible to users.
Additionally, with VDAs gaining popularity, the formalization of process of handling and maintaining assets by supplanting authenticity should be adopted to protect the country’s payment system exposure to digital assets attributable to their extreme price volatility.
THE ROLE OF SELF- REGULATORY ORGANIZATIONS (SROs)
As with all emerging technology and online platforms, Self-Regulatory Organizations (SROs) assume a pivotal role in ensuring adequate consumer protection. Serving as trusted gatekeepers for new entrants, SROs offer guidance, awareness programmes, and educational initiatives to shield consumers from potential scams and losses resulting from inadequate awareness. By establishing industry standards, best practices, and conducting compliance reviews, SROs foster responsible conduct among their members. Moreover, they facilitate the resolution of consumer complaints and provide crucial data to the government, including market trends and compliance indicators.
The significance of such an SRO cannot be overstated within the dynamic and rapidly expanding Web3 industry. Through concerted efforts between all the stakeholders, an SRO should be constituted to achieve a secure and conducive ecosystem that can ensure the protection and well-being of consumers actively participating in the Web3 realm.
CONCLUSION
Robust consumer protection measures are imperative in the rapidly expanding Web3 industry. The industry is still in its nascent stage and t will be many years before a fool-proof discourse can be developed, therefore, inducting laws to initiate dialogue becomes imperative. By implementing the recommended measures, the industry can cultivate an environment of trust, transparency, and responsible practices. Prioritizing equitable treatment, transparent practices and efficient complaint redressal will empower and safeguard consumers, enabling the Web3 space to reach its full potential while promoting the benefits of decentralized technologies and virtual digital assets.
The author is MP, Rajya Sabha (Upper House), Nationalist Congress Party
